A growing number of U.S. money managers of all sizes are expanding their sales teams to cater specifically to institutional clients.
Executives at many of these firms have been slowly and steadily increasing their institutional sales staffs since the aftermath of the global financial crisis. But that growth has ramped up in the past six to 12 months due, in part, to an improving stock market and a growing institutional client base with an increased appetite for alternative assets.
Based on Pensions & Investments data, the number of newly created sales positions for the first six weeks of 2014 alone is 33% higher than those reported during the entire fourth quarter of 2013.
In addition, at least four firms — BMO Global Asset Management, RidgeWorth Investments, Putnam Investments and Standard Life Investments Ltd. — have announced plans to boost their institutional sales staffs between 30% and 100% over the course of the year.
“Because the money manager industry is stabilizing, we're seeing a continued growth in institutional sales teams,” said Keith S. Macomber, a partner and member of the financial services practice of executive recruiter CTPartners LLC, New York.
Robert L. Reynolds, president and CEO of Putnam Investments LLC in Boston, said his firm was looking to expand its institutional business by hiring two institutional sales representatives — one for North America, the other for continental Europe.
“Even though we've been a player in the institutional marketplace, the goal is to be a much bigger player,” said Mr. Reynolds. According to Putnam's website, the company had $148 billion in assets under management at Nov. 30. Of that, $73 billion, or 49%, was institutional.
Recently, Phillip E. Enochs, BMO Global Asset Management's managing director and head of relationship management, Chicago, said executives at the firm were in the process of increasing its U.S. institutional sales by 30%, looking to add three people to its current 10-person team sometime this quarter. BMO Global Asset Management has approximately $130 billion under management, of which 49%, or $64 billion, is institutional.
And officials at RidgeWorth Investments, Atlanta, announced that they, too, plan to increase the firm's sales team by 30% in response to a growing demand from institutional investors for its investment strategies. This means the firm will be hiring “north of 15 people across RidgeWorth and our boutiques,” according to Jim Stueve, president of RidgeWorth Investments. The firm has $50.6 billion in assets, of which approximately 50%, or roughly $25.3 billion, is institutional.
Jack Boyce, Standard Life's U.S. managing director based in Boston, said the firm is looking to double its sales presence from the current three staff.
“Adding institutional sales professionals has definitely been an area of active recruiting for the industry,” said James Houston, a founding partner of executive recruiter Prince Houston Group, New York.
With equity markets up last year and with fixed income not creating the challenges that executives at equity shops expected, the economics of the asset management business have been quite strong lately.
“We're seeing a significant bounce in the market, so firms have more resources to deploy,” said Ross Dowd, executive vice president, global head of marketing and client service, Acadian Asset Management LLC, Boston.
Currently, Acadian is working on boosting its institutional sales presence in Europe and Japan, preparing to open an office in Tokyo sometime this year. Mr. Dowd expects the Tokyo office to have a full sales team of five or six members by year-end. Acadian has $55 billion in assets under management, all of which is institutional.
But healthy economics isn't the only reason many money managers are beefing up their institutional sales teams. The increased demand for alternative investments from investors is also a major factor. With a number of smaller institutional investors looking to diversify their portfolios, CTPartners' Mr. Macomber said he has seen an increased focus on managers building their alternative-focused capabilities, to accommodate these investors. Because of this, these money managers are needing sales executives who specialize in alternatives.
Marylin L. Prince, also a founding partner of Prince Houston Group, agreed. “The firms (specializing in alternatives) have been aggressively developing their sales efforts to penetrate the institutional marketplace.”
That said, Ms. Prince noted her firm “has seen a consistent year-over-year increase in this area since the crisis.”
Money managers are augmenting their alternative capabilities in different ways. Some — including AllianceBernstein (AB) LP (AB) and Ramius LLC, both in New York — have been adding liquid hedge fund strategies.
It's only been in the past year or so that money managers have felt stable enough to invest a substantial amount of energy and money into more assertively growing their institutional sales divisions.
“After the crisis, there were still firms trying to get their sea legs again. Some firms didn't feel stable until a year, year and a half ago,” said Mr. Macomber. “Firms now know where they're headed.”
“There's definitely been investment in new growth initiatives (from money managers) now that the crisis is farther in the rearview,” added Mr. Houston. “On the investment side, we've seen the diversification of strategies. So the corollary is to develop a strong sales team to help with those investment strategies.”
Jeffrey A. Levi, a director at Darien, Conn.-based money manager consulting firm Casey, Quirk & Associates LLC, added: “Two big trends are taking place — buyer demands for specific products are growing; and strategies are evolving quickly. So finding managers with sales teams with allocation skills that can deliver quickly are in high demand.”
Several industry observers and participants believe money management will continue to see more institutional distribution growth.
“I think you're going to continue seeing it in pockets,” Mr. Levi added in regard to firms growing their institutional sales divisions. “They're either adding new teams or bringing on existing teams.” n
London Bureau Chief Sophie Baker contributed to this story.
This article originally appeared in the February 17, 2014 print issue as, "More firms bulking up to chase institutional clients".